Audit questions $1.4b in Halliburton bills

Expenses at issue from Iraq contracts
By Rick Klein, Globe Staff | June 28, 2005

WASHINGTON -- Internal Pentagon audits have flagged about $1.4 billion in expenses submitted by Halliburton Co. for services the firm is providing in Iraq, charges that include $45 cases of soda, $100-per-bag laundry service, and several months preparing at least 10,000 daily meals for a US military base that the troops did not need and ultimately went to waste, according to a report released yesterday by congressional Democrats.

The Defense Contract Audit Agency, which reviews Pentagon contracting, identified $1.03 billion in Halliburton invoices that it questioned as excessive, and an additional $442 million in expenses the company reported that the agency deemed to be insufficiently documented, according to the report.

The report, which House and Senate Democrats made public yesterday, gives a broad overview of questionable costs racked up by the energy conglomerate once led by Vice President Dick Cheney. Federal officials have also probed allegations that Halliburton executives have run up costs by staying at top-of-the-line hotels in Kuwait, that they have paid too much to import fuel, and that they've prepared thousands more meals than they've served. The report categorizes allegations that previously had been anecdotal, and expands the scope of allegations of waste and financial malfeasance.

It's also the latest salvo in Democrats' long-running contention that Halliburton -- by far the largest private contractor working in Iraq -- has gotten favored treatment from the Bush administration despite overcharging the government.

''Whether the explanation is gross incompetence or deliberate malfeasance, the result is the same: The taxpayers are getting bilked," Representative Henry A. Waxman of California, the ranking Democrat on the House Government Reform Committee, said yesterday at a hearing Democrats held to highlight the report. ''This special treatment must end."

Cathy Mann, a spokeswoman for Houston-based Halliburton, said the $1.4 billion figure is a ''gross mischaracterization" of the expenses that are under review, since some of the discrepancies have already been resolved.

For example, Mann said, Halliburton and the Pentagon disagreed over a bill for food services, but resolved the matter in April. She said both sides ultimately agreed that Halliburton would get $145 million of $200 million that had been withheld over the dispute.

''The only thing that's been inflated is the political rhetoric, which is mostly a rehash of last year's elections," Mann said. ''Halliburton is taking care of our troops' needs so they can focus on the tasks at hand. . .Audits are part of the normal contracting process, and it is important to note that the auditors' role in the process is advisory only" to the other Pentagon agencies that award private contracts.

The audits surfaced in a joint report prepared by the Senate Democratic Policy Committee and the Democratic staff of the House Government Reform Committee. The audits were part of the Pentagon's normal contract review policy; Democratic lawmakers obtained them from whistle-blowers who thought the information should come to light, according to committee aides. The whistleblowers asked not to be identified.

Much of the money in question has not yet been paid to Halliburton, pending resolution of the concerns raised by auditors.

Halliburton has won a number of contracts -- some the Pentagon handed to them on a no-bid basis -- for military suppport, security and reconstruction work in Iraq, deals that could total as much as $18 billion. Divisions of the company are under contract to provide meals and logistical services for coalition troops, rebuilding Iraq's oil infrastructure, and purchasing equipment and supplies to help with the reconstruction of the country.

The contracts entitle the company to get full reimbursement for its costs from the government, in addition to a fee that is a percentage of those costs, an arrangement that critics say creates an incentive for the company to pad its bills.

Democrats cited numerous instances in the report of apparent double-charging for services and equipment, and seemingly excessive costs for basic materials like food, gasoline, and laundry.

A November report by the Army Audit Agency, another Pentagon review office, found that Halliburton contracts had nearly $10 million in ''duplicate costs" for cargo and freight equipment as well as instances where the company issued more paychecks for a project than the number of people working on it, and the purchase of $560,000 worth of unnecessary equipment. At one point, the company billed the government $152,000 to build a 10,000-title ''movie library," an expense auditors ultimately deemed excessive.

Rory Mayberry, a former food production manager for the Halliburton subsidiary Kellogg, Brown & Root, testified at the hearing that the company routinely overpaid for staples such as tomatoes and bacon by importing the food from Philadelphia instead of using local suppliers overseas and in the region. Mayberry said that in early 2004, the company ordered enough food to prepare 20,000 meals every day at one US base in Iraq even though it was serving only 10,000 of them a day.

''When I questioned these practices, the managers told me this needed to be done because KBR lost money in prior months, when the government suspended some of the dining-hall payments to the company," said Mayberry, who testified via videotape from Iraq, where he is now working for another private company.

Two employees of the fuel transport and security company Lloyd-Owen International, another private company, told lawmakers yesterday that while Halliburton paid a Kuwaiti company about $1.30 per gallon of gasoline to fill the tanks of its vehicles, other contractors paid as little as 18 cents per gallon.

Federal officials have launched investigations of portions of Halliburton contracts, most notably in a March indictment where the Justice Department accused a company official and a subcontractor of overcharging taxpayers by nearly $5 million.

Senate minority leader Harry Reid, Democrat of Nevada, said: ''The American taxpayers have simply been cheated. For every dollar that Halliburton gets in excess profits, these are jobs that cannot go to Iraqis who need them."

Rick Klein can be reached at rklein@globe.com.

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